Michael Martins
(Michael Martins, Guest Writer, FX and CFD trader and broker)

Eskom South African energy crisis and economic impact

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South Africa is currently being gripped by a dire energy crisis, with widespread national blackouts or load-shedding as they’re known locally. The failure of the country’s national power utility and primary power generator—Eskom—to meet electricity  demand has been ongoing since 2007, and is now in its worst period. Years of mismanagement, sabotage, theft of infrastructure and systematic corruption are believed to be the key reasons why Eskom has been unable to keep the lights on.

If the electric grid collapses in Africa’s most developed economy, fuel shortages would occur, which in turn could affect transport. The industry could also collapse completely, something that the country has never seen in its entire history, leading to historical political unrest and societal collapse as riots and looting will be the order of the day.

The ensuing outage could last anything from days to weeks and “would be catastrophic,” according to Eskom, which cites the experience of Venezuela, whose economy was crippled by an extended blackout in 2019, as the closest example of what South Africa could expect.

Since 2022, the government has been considering measures to relieve a portion of Eskom’s unsustainable R423billion debt. The goal is to strengthen the utility’s balance sheet enabling it to restructure and undertake the investment and maintenance needed to support security of electricity supply, according to the National Treasury. However, there are doubts that the debt relief will bring hope.

(The Congella Power Station completed in 1928 was one of the first power plants built and owned by Eskom)

One possible solution to South Africa’s electricity problem could be the deployment of renewable energy. In recent days, Eskom has via legal proceedings stopped a small South African town of producing its own electricity supply, maintaining its monopoly on electricity supply despite public outcry.

Only time will tell if a solution will be found. Meanwhile, the electricity supply is getting worse with up to 11 hours per day of blackouts while the country’s economic outlook is deteriorating day by day.

There seems to be no end to the crisis and no political will to resolve it.

Political infighting seems to be the order of the day and as the winter approaches the crisis seems to be worsening. Hospital patients dying on a daily basis, the unemployment rate is at historical highs and the economy is only weakening.

(Vapor rises from chimneys at Eskom’s Medupi coal-fired power station in Lephalale, South Africa, on Thursday, May 19, 2022)

Eskom Hld SOC Ltd or Eskom was established in 1923 as the Electricity Supply Commission (ESCOM).Eskom supplies the vast majority of South Africa’s electricity via a fleet of coal-fired power stations that have been overused and under maintained for years. The firm loses well over 1 billion rand ($55 million) a month from theft, its former chief executive told parliament on Wednesday (April 26). Andre de Ruyter made the comments in a written submission to parliament’s Standing Committee on Public Accounts (SCOPA) seen by Reuters. An Eskom spokesperson said the company noted “that nothing new surfaced from today’s appearance of Andre de Ruyter at Parliament that is not already dealt with by law enforcement agencies”.

Most of South Africa’s electricity—nearly 80%—is produced at coal-fired power plants, with much of the rest generated by facilities burning oil and diesel, according to the BP Statistical Review of World Energy.